PT Bank Central Asia Tbk 20th Grand Indonesia, BCA Tower Jl. M.H Thamrin No. 1 Jakarta, Indonesia Ph : (62-21) 2358-8000
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FX reserves: The precarious edge of Powell’s boot
Executive Summary:
Bank Indonesia’s foreign reserves stood at USD 136.4 Bn by the end of last month, a decline of USD 2.4 Bn from April, primarily driven by government debt payments.
Capital markets remain precariously balanced on concerns of tapering by the Fed, of which uncertainties remain due to the mixed signals coming out of the US labor market.
Combined with risks associated with a recovery in imports as well as maturing government and SOE debt for the year, BI is likely to continue holding a wait and see posture for the coming months.
Bank Indonesia’s (BI) foreign reserves stood at USD 136.4 Bn by the end of last month, a decline of USD 2.4 Bn from the historical high recorded in April. The lion’s share of this decline was driven by the USD 5.9 Bn worth of FX-denominated government bonds maturing by the end of May.
The deluge of government debt payments however, obscures the stealthy return of foreign inflows that began in late April, the first since rising yields sparked off large outflows earlier in the year (Chart 1). This doesn’t seem to be unique to Indonesia, emerging market bond and currency indices have both steadily crept up in the past few months, accompanied by a weakening USD (Chart 2). A combination of steady US Treasury yields, continuing economic recovery across the globe, as well as continued monetary easing by the Fed have converged to create a rather favorable environment for capital market operators in the recent months.
This state of being however, remains precariously perched upon the whims of the Fed. Indeed, markets remain wary of when tapering – or rather, serious nods towards the impending arrival of tapering – will take place. Although the Fed’s tone has remained strongly dovish up to this point, the very fundamental fact remains that economic recovery in the US is proceeding at quite a robust speed. So long as economic indicators continue to tick upwards in the US, nervous prognostications of how long it will take before Powell decides enough is enough are likely to continue.
How long the current state of affairs in the market can last then, rests on the pace of the US’ economic recovery.
There are two criteria by which we can evaluate this. The first is inflation. While both the CPI and PPI have skyrocketed in the US over the past few months, much of these figures remain distorted by the extremely low-base of last year, and the sharp
increase may very well be temporary in nature. This at least, appears to be the view of the Fed.
A second thing to consider is employment, which the Fed itself has proclaimed to be one of the primary metrics by which it will dictate the direction of its policy. Where then, does the US labor market stand? While vast strides have been made since the bleak depths plumbed last year, employment figures still remain quite a ways below pre-pandemic levels. Progress then, but still not quite the ideal level of progress.
Ultimately, the accumulating picture we have of the US’
economic recovery – particularly with respect to the Fed’s own stated goals – remains very much mixed. In other words, markets are confused precisely because the picture of recovery remains so confusing. That the pace of recovery is robust can hardly be denied. The fact that employment figures remain behind the Fed’s target however, complicates the picture by a fair bit (Chart 3).
There are other concerns as well. While the current commodity boom has so far helped maintain Indonesia’s trade surplus, continuing recovery may very well push imports further up, potentially putting pressure on the current account. The picture for the capital account, excluding the uncertainties concerning the Fed, remains similarly mixed. While upcoming financial developments concerning Indonesian big tech (eg. the double listing of the Gojek-Tokopedia behemoth) may spur fresh capital inflows, there is also a risk concerning the large amounts of government and SOE debt maturing this year, particularly those related to Pertamina, PLN and Inalum.
As long as the current account deficit remains below the 2% generally forecast however, much of this should remain manageable. With all these combined uncertainties, we expect BI to continue adopting a wait and see posture for the coming months.
Monthly Economic & Finance Briefing
Economic, Banking & Industry Research of BCA Group
Note issued: June 8th, 2021
PT Bank Central Asia Tbk 20th Grand Indonesia, BCA Tower Jl. M.H Thamrin No. 1 Jakarta, Indonesia Ph : (62-21) 2358-8000
Table 1. Based on the Fed’s dot plot, the number of Fed board members expecting rate
Chart 2. Emerging market assets have recorded steady increases in recent months, accompanied by a softening USD
14263
12500 13000 13500 14000 14500 15000 15500 16000 16500 17000
-10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0
USD Bn
Equities (lhs) Bonds (lhs) USD-IDR (rhs) Source: Bloomberg (last update: 08 Jun 2021)
-1.9
-3.1
94.7 104.2
93.3
80 85 90 95 100 105 110
EM Currency Index EM Bond Index USD Index
Source:Bloomberg (last update: 08 Jun 2021) Index (100: 01 Jan 2020)
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Indonesia – Economic Indicators Projection
** Estimation of Rupiah’s fundamental exchange rate
2016 2017 2018 2019 2020 2021E
Gross Domestic Product (% YoY) GDP per Capita (US$)
Consumer Price Index Inflation (% YoY) BI 7 day Repo Rate (%)
USD/IDR Exchange Rate (end of year)**
Trade Balance (US$ billion) Current Account Balance (% GDP)
5.0 3605
3.0 4.75 13,473
8.8 -1.8
5.1 3877
3.6 4.25 13,433
11.8 -1.6
5.2 3927
3.1 6.00 14,390
-8.5 -3.0
5.0 4175
2.7 5.00 13,866
-3.2 -2.7
-2.1 3912
1.7 3.75 14.050
21.7 -0.4
4.5 4055
3.1 3.50 14.460
10.1 -1.8
Chart 3. US inflation has skyrocketed in recent months, even as employment remains well below pre-pandemic levels
4.2 6.2
-2 -1 0 1 2 3 4 5 6 7 8
115 120 125 130 135 140 145 150 155
% YoY
Millions
Total Nonfarm Payrolls (lhs) CPI (rhs) PPI (rhs) Source: Bloomberg
144.9
4
Selected Recent Economic Indicators
Source: Bloomberg, BI, BPS Notes:
*Previous data
**For change in currency: Black indicates appreciation against USD, Red indicates depreciation
***For PMI, > 50 indicates economic expansion, < 50 indicates contraction Key Policy Rates Rate (%) Last
Change
Real Rate (%)
Trade &
Commodities 7-Jun -1 mth Chg (%)
US 0.25 Mar-20 -3.95 Baltic Dry Index 2,428.0 3,183.0 -23.7
UK 0.10 Mar-20 -1.40 S&P GSCI Index 529.6 523.0 1.3
EU 0.00 Mar-16 -2.00 Oil (Brent, $/brl) 71.5 68.3 4.7
Japan -0.10 Jan-16 0.30 Coal ($/MT) 115.6 93.9 23.1
China (lending) 4.35 Oct-15 3.45 Gas ($/MMBtu) 2.98 2.90 2.8
Korea 0.50 May-20 -2.10 Gold ($/oz.) 1,899.2 1,831.2 3.7
India 4.00 May-20 -0.29 Copper ($/MT) 9,881.3 10,420.0 -5.2
Indonesia 3.50 Feb-21 1.82 Nickel ($/MT) 17,863.0 18,052.5 -1.0
CPO ($/MT) 1,027.7 1,159.0 -11.3
Rubber ($/kg) 1.65 1.71 -3.5
SPN (1M) 2.57 2.63 -6.2
SUN (10Y) 6.40 6.40 0.5
INDONIA (O/N, Rp) 2.80 2.80 -0.1 Export ($ bn) 18.48 18.35 0.7
JIBOR 1M (Rp) 3.56 3.56 0.3 Import ($ bn) 16.29 16.79 -3.0
Trade bal. ($ bn) 2.19 1.57 40.0
Lending (WC) 9.12 9.23 -10.55
Deposit 1M 3.74 3.88 -14.01
Savings 0.83 0.83 0.13
Currency/USD 7-Jun -1 mth Chg (%) Consumer confidence
index (CCI) 101.5 93.4 85.8
UK Pound 0.705 0.715 1.42
Euro 0.820 0.822 0.20
Japanese Yen 109.3 108.6 -0.59
Chinese RMB 6.397 6.433 0.56
Indonesia Rupiah 14,265 14,285 0.14 Capital Mkt 7-Jun -1 mth Chg (%)
JCI 6,069.9 5,928.3 2.39
DJIA 34,630.2 34,777.8 -0.42
FTSE 7,077.2 7,129.7 -0.74 USA 61.2 60.7 50
Nikkei 225 29,019.2 29,357.8 -1.15 Eurozone 63.1 62.9 20
Hang Seng 28,787.3 28,610.7 0.62 Japan 53.0 53.6 -60
China 52.0 51.9 10
Korea 53.7 54.6 -90
Stock 1,892.8 1,892.9 -0.11 Indonesia 55.3 54.6 70
Govt. Bond 957.5 964.6 -7.14
Corp. Bond 27.5 28.5 -1.00
-30.8
8.3 10.9 0.7
Chg (bps) Apr
May Money Mkt Rates 7-Jun -1 mth Chg
(bps)
Bank Rates (Rp) Mar Feb Chg
(bps)
Foreign portfolio
ownership (Rp Tn) May Apr Chg (Rp Tn)
External Sector
Prompt Indicators
Car sales (%YoY)
Manufacturing PMI Cement sales (%YoY)
Mar Feb
Apr
Motorcycle sales (%YoY)
Mar Chg (%)
Central bank reserves
($ bn) 138.8 137.1 1.24
Apr
902.9 10.5 -38.2
282.0 -7.2
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PT Bank Central Asia Tbk
Economic, Banking & Industry Research of BCA Group 20th Grand Indonesia, Menara BCA
Jl. M.H Thamrin No. 1, Jakarta 10310, Indonesia Ph : (62-21) 2358-8000 Fax : (62-21) 2358-8343
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Economic, Banking & Industry Research Team
David E. Sumual Chief Economist david_sumual@bca.co.id +6221 2358 8000 Ext: 1051352
Agus Salim Hardjodinoto Barra Kukuh Mamia Victor George Petrus Matindas
Industry Analyst Economist / Analyst Industry Analyst
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+6221 2358 8000 Ext: 1005314 +6221 2358 8000 Ext: 1053819 +6221 2358 8000 Ext: 1058408
Gabriella Yolivia Derrick Gozal Livia Angelica Thamsir
Economist / Analyst Economist / Analyst Economist / Analyst
gabriella_yolivia@bca.co.id derrick_gozal@bca.co.id livia_thamsir@bca.co.id
+6221 2358 8000 Ext: 1063933 +6221 2358 8000 Ext: 1066722 +6221 2358 8000 Ext: 1069933
Ahmad Aprilian Rizki Arief Darmawan
Research Assistant Research Assistant
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